MNI US OPEN - China PMI Surge Aids USD Pullback

NEWS

ECB (MNI): ECB's Nagel Expresses "Firm Conviction" That No Rate Cuts Are Forthcoming

Nagel makes introductory statement on the Bundesbank annual report, speaking characteristically hawkishly. On QT: "there is no reason for supplying the financial system over the long term with such ample liquidity as is being provided now. I am therefore in favour of taking a steeper path of reduction starting in July" On rates: "the interest rate step announced for March will not be the last. Further significant interest rate steps might even be necessary afterwards" On rate cuts: Until [underlying inflation returns to medium-term target], interest rate cuts are a non-starter. That is my firm conviction."

ECB (BBG): ECB Should Reach Peak Rate by September at Latest, Villeroy Says

The European Central Bank should reach its peak interest rate by September, Governing Council member Francois Villeroy de Galhau said. “It seems to me desirable to reach this terminal rate by the summer, that is to say by September at the latest,” the French central bank chief told lawmakers in Paris on Wednesday, highlighting the ECB’s “commitment to bring this inflation down to 2%.”

ECB (MNI): ECB's Muller Reiterates Inflation Too High

ECB's Muller states that rate hikes are having an effect but inflation is too high, adding that expectations of rapid ECB rate cuts are wishful thinking. Nothing too new here from Muller, the Estonian rep on the ECB. He stated back in December that "rate hikes so far aren't enough" and is firmly in the 50bps camp for the March meeting - Muller stated earlier in February "Half point hike in March is needed to tame inflation".

ECB (MNI): Passive Phase of ECB QT Gets Underway Today

As a side note for markets and macro, with today marking the 1st of March, the ECB's quantitative tightening plans get underway. The initial average pace of QT will be EUR 15bln (on average) per month across March - June. The pace for H2 this year remains up for review. This quantitative tightening phase is passive, not active, meaning the bank end the reinvestment of 100% of the proceeds of maturing bonds, and are not at this stage conducting outright sales.

BOE (MNI): Highlights of Bailey's Speech Appear Balanced

Bailey's speech does look pretty balanced at first glance. He says in Feb they made a "very deliberate change to the way we described our view of the outlook. We moved away from what had effectively been a presumption at our previous meetings that further increases in Bank Rate would be required."

"We recognised, however, that further tightening would be required if there were to be evidence of more persistent inflationary pressures." But the key part is here: "My reading of the evidence since our February meeting... is that the economy is evolving much as we expected it to."

UK (MNI): OBR to Cut UK Borrowing, Growth Outlooks

The UK’s Office for Budget Responsibility is likely to lower forecasts for public borrowing by some GBP30 billion for this year and next when the government announces its March 15 Budget, but take a darker view of the medium-term outlook for economic growth, a senior research economist at the Institute for Fiscal Studies told MNI.

ITALY (BBG): Italy Forced to Revise Deficits in ‘Superbonus’ Tax-Break Legacy

Italy’s budget deficits for the past three years were revised drastically higher after a reassessment of tax breaks including the so-called “superbonus” showed a bigger immediate hit to the public finances. A month after new guidance by European Union statistics officials at Eurostat first alerted Giorgia Meloni’s coalition to the move, national agency Istat revealed the larger shortfalls on Wednesday to incorporate the impact of the giveaways.

JAPAN (MNI): BOJ May Lower Exports, Industrial Production View

The Bank of Japan may downwardly revise its assessment on exports and industrial production from its upbeat view that both key economic components are trending higher following recent weaker-than-expected data, MNI understands. Bank officials expect exports and production to rebound in the second quarter as high levels of order backlogs for automobiles and capital goods provide a buffer against downward pressure from slowing overseas demand.

JAPAN (MNI): BOJ Must Keep Easy Policy As 2% Not Hit - Nakagawa

Bank of Japan board member Junko Nakagawa said on Wednesday that the BOJ needs to maintain easy policy to firmly support the economy as the 2% price target hasn’t been achieved. “Long-term interest rates rose as a result of the decision to widen the range of the 10-year interest rate in December but the merit of easy policy, such as improvement of functioning in bond markets, is bigger than its demerits,” Nakagawa told business leaders in Fukushima City.

CHINA (BBG): Xi Boosts Party Control of China’s Economy With Vast Changes

President Xi Jinping moved to consolidate the Communist Party’s hold over the world’s second-biggest economy, touting plans for sweeping changes to China’s bureaucracy and more influence within private companies. In a speech on Tuesday ahead of the annual National People’s Congress legislative session, Xi said the party would roll out plans for “deepening structural reform” in the financial sector and exercise more control over science and technology work — key strategic areas as the US moves to prevent China from obtaining advanced computer chips and other high-tech products.

CHINA (MNI): Local Govt Finances to Improve in 2023 - Liu Kun

Local government finances will improve in 2023 as adjustments in epidemic control measures and growth policies lead to an economic recovery, said China's Finance Minister Liu Kun at a press conference on Wednesday. Liu said local government debt was unevenly distributed with some regions facing pressure on principal and interest payments. He said Beijing had urged local governments to take responsibility to resolve systemic risk.

INDIA (MNI): Western Foreign Mins Seek Closer Relations w/Delhi At G20 Summit

A number of Western foreign ministers and officials have issued comments this morning seeking to promote good relations with the Indian gov't as the G20 foreign ministers' summit in New Delhi gets underway. Earlier, EU High Rep for Foreign Affairs and Security Policy Josep Borrell stated that the "War of Russia against Ukraine has shaken the world economy and global security....India remains an indispensable and strategic partner for the EU...in these geopolitical settings, India and the EU can increase energy cooperation such as solar, wind, and green hydrogen."

HUNGARY (MNI): Parliament Begins Debate On Swedish & Finnish NATO Accession

The Hungarian National Assembly begins a debate on the ratification of Sweden and Finland's NATO accession, with the governing Fidesz Party of PM Viktor Orban still proving circumspect on both nations joining while they are - in Orban's words - “spreading blatant lies about Hungary, about the rule of law in Hungary, about democracy, about life here." Orban goes on, “How, this argument runs, can anyone want to be our ally in a military system while they’re shamelessly spreading lies about Hungary?”

TURKEY (MNI): Erdogan Indicates Elections to Take Place May 14

President Erdogan has indicated that the country's presidential and parliamentary elections will take place on 14 May, saying that the "Turkish people will do what is necessary on May 14." The opposition alliance of parties is yet to agree on a candidate to challenge Erdogan, but will meet tomorrow to decide on a joint leader. The alliance, while committed to ousting Erdogan, remains fragile given its disparate ideological components, ranging from nationalists to social democrats to Kurdish-interest parties. Opinion polling has been relatively sparse, especially gauging Erdogan's chances against potential rivals.

GLOBAL (MNI): Some Slowing in Global Housing Correction, Momentum Remains Negative

The housing correction continues across developed markets in an orderly fashion but the latest data in a number of countries showed a slowing in the decline in house prices. People may be waiting to sell given the current environment thus reducing supply. But 3-month momentum remains negative and given that and the rally prior to 2022 prices likely have further to go before they trough. Corrections are proceeding at different speeds given mortgages in some countries are more exposed to rate hikes than others and varying indebtedness.

DATA

EUROZONE FINAL FEB MANUF. PMI 48.5 (= FLASH); JAN 48.8 (MNI)

GERMANY FINAL FEB MANUF. PMI 46.3 (FLASH 46.5); JAN 47.3 (MNI)
GERMANY FEB UE RATE (SA) 5.5% (= FCST); JAN 5.5% (MNI)
BAVARIA FEB CPI +0.8% M/M; +8.8% Y/Y (MNI)
NRW FEB CPI +1.0% M/M, +8.5% Y/Y (MNI)
SAXONY FEB CPI +0.8% M/M; +9.2% Y/Y (MNI)

FRANCE FEB MANUFACTURING PMI 47.4 (FLASH 47.9); JAN 50.5 (MNI)

ITALY FEB MANUFACTURING PMI 52.0 (FCAST 51.0); 50.4 JAN (MNI)

SPAIN FEB MANUF. PMI 50.7 (FCST 49.0); JAN 48.4 (MNI)

UK FINAL FEB MANUF. PMI 49.3 (FLASH 49.2); JAN 47.0 (MNI)
UK FEB M4 MONEY SUPPLY +1.3% M/M, +2.7% Y/Y (MNI)
UK BOE FEB MORTGAGE APPROVALS 39,637 (MNI)
UK FEB BRC SHOP PRICES +0.8% M/M, +8.4% Y/Y (MNI)

SWISS FEB RETAIL SALES +0.6% M/M, -2.2% Y/Y (MNI)

CHINA DATA (MNI): Manufacturing PMI Continues to Expand in Feb

• CHINA FEB MANUFACTURING PMI 52.6 VS 50.1 IN JAN

China's Purchasing Managers' Index rose for a second month to 52.6 in February, with the increase from 50.1 in January led by the quick recovery in both production and new orders, data from the National Bureau of Statistics on Wednesday showed. The production sub-index jumped to 56.7 in February, a sharp rebound from January's 49.8 reading and return to expansion territory after four months of contraction. As the impacts of the Spring Festival holiday and epidemic fade, the recovery in production is accelerating and market demand continues to improve, the NBS said.

AUSTRALIA (MNI): Aussie CPI Eases to 7.4% In Jan

The Reserve Bank of Australia has been delivered evidence that inflation may have peaked after the monthly Consumer Price Index fell to 7.4% y/y in January, according to the Australian Bureau of Statistics. The decline from 8.4% y/y in December aligns with the RBA's view that inflation peaked in Q4 2022, though the lessened pace of price pressures is unlikely to deter the central bank from hiking rates by 25bp to 3.60% when it meets on March 7.

AUSTRALIA (MNI): Aussie Q4 GDP Disappoints With 0.5% Q/Q Growth

The Reserve Bank of Australia will take comfort after Q4 GDP grew 0.5% q/q according to Australian Bureau of Statistics data released Wednesday, tracking in line with the bank's projections for slower growth and an eventual return to its inflation target. The 2.7% y/y pace aligns with forecasts in the RBA's February Statement on Monetary Policy, which points to growth slowing to around 1.5% by the end of the year as the cumulative impact of 325bp of tightening - and more to come - weighs on aggregate demand. Markets had expected growth of 0.8% q/q. Growth slowed from 0.7% q/q and 5.9% y/y in Q3.

FOREX: Chinese Currency Surges as PMI Tops Forecast

• The USD is fading early Wednesday, with the USD Index slipping through yesterday's lows well ahead of the NY crossover. Much of the price action has been driven by a solid beat for Chinese PMI data overnight, underpinning a CNH rally.
• USD/CNH has shown below 6.90, having taken out support at the 200-dma of 6.9145. Downside moves initially target 6.8781 for direction, marking the 38.2% retracement for the Jan - Feb upleg. Moves follow better-than-expected PMI data overnight from China, with both the manufacturing and non-manufacturing PMI data topping forecast.
• The non-manufacturing print at 56.3 was the strongest since the recovery from the initial waves of the pandemic in 2020, with 2020's 56.4 print the highest in 8 years.
• The Chinese currency rally is also lending a helping hand to NZD, which outstrips all others in G10 and reflects the bounce in equity markets off the late Tuesday pullback lows.
• Lastly, the single currency trades to the better following regional German CPI data, which could pose an upside risk to the February Eurozone revisions. North-Rhine Westphalia was a particular hotspot, with monthly prices rising 1.0%.
• Wednesday focus turns to the ISM Manufacturing release for February, with January construction spending also on the docket. The data will be carefully eyed for any clues ahead of next Friday's Nonfarm payrolls release - due March 10th. Final February Manufacturing PMI data is also scheduled from the US and Canada.

BONDS: A Very Busy Morning Session

• A busy start for Government Bonds, and some decent market moves in Bund pre cash open, following the botched release of the German NRW data, with wires reporting a 0.1% MoM, when the actual data was 1.0%.
• Bund spiked to 132.99 pre cash open, but quickly settle back to session low, with Yield trading above 2.70%.
• Volumes are above average in Europe, even discounting the roll flows.
• Peripherals are trading close to flat against the German 10yr, while Italy lean 2bps wider.
• In The UK, Bailey saying that the data is broadly in line with his expectations - and also saying that further tightening would be required if there were To be "more evidence of persistent inflationary pressures."
• Gilt look to have taken some of Bailey's comments on the Dovish side, and Gilt are trading back in the green, and testing the 100.00 handle, while SONIAs are also spiking higher.
• Gilt/Bund is now 5.3bps tighter, at 111.7bps.
• A calmer session for the US, but futures outperform Germany, bringing the Tnotes/Bund spread 3.4bps tighter, but within past ranges.
• Looking ahead, US Final manufacturing PMI and ISM are the focus.
• Speakers, include Fed Kashkari, and ECB Visco.

EQUITIES: E-Mini S&P Stages Shallow Bounce After Tuesday Dip

Eurostoxx 50 futures remain above Friday’s low of 4175.00. Key support to watch is 4183.90, the base of a bull channel drawn from the Oct 13 low. While channel support holds, the broader uptrend remains intact and a continuation higher near-term would expose the bull trigger at 4323.00, Feb 16 high. A break of this hurdle would resume the broader uptrend. On the downside, a breach of the channel base would alter the picture. S&P E-Minis trend conditions remain bearish and short-term signals suggest scope for an extension lower near-term. The contract continues to trade below the 50-day EMA, at 4023.15 and sights are set on 3901.75, the Jan 19 low and 3887.62, the 76.4% retracement of the Dec 22 - Feb 2 bull cycle. Resistance to watch is 4047.25, the 20-day EMA. Note that a clear break of both the 50- and 20-day EMAs would signal a possible reversal.

• Japan's NIKKEI closed higher by 70.97 pts or +0.26% at 27516.53 and the TOPIX ended 4.53 pts higher or +0.23% at 1997.81.
• Elsewhere, in China the SHANGHAI closed higher by 32.743 pts or +1% at 3312.348 and the HANG SENG ended 833.77 pts higher or +4.21% at 20619.71.
• Across Europe, Germany's DAX trades higher by 70.48 pts or +0.46% at 15436.11, FTSE 100 higher by 34.59 pts or +0.44% at 7910.83, CAC 40 up 30.22 pts or +0.42% at 7298.15 and Euro Stoxx 50 up 20.92 pts or +0.49% at 4259.3.
• Dow Jones mini up 82 pts or +0.25% at 32763, S&P 500 mini up 12.25 pts or +0.31% at 3987.75, NASDAQ mini up 48 pts or +0.4% at 12121.25.

COMMODITIES: WTI Futures Target $77.93 50-Day EMA Resistance

WTI futures remain above last week’s lows and key short-term support has been defined at $73.80, the Feb 22 low. Moving average studies are in a bear-mode position and for now, this continues to highlight a downtrend. A break of the $73.80, would open $72.64, the Feb 6 low. Initial resistance to watch is at $77.93, the 50-day EMA. A clear break of this EMA would be a bullish development. Trend conditions in Gold remain bearish and price is trading below the 50-day EMA, at $1846.8 - current gains are considered corrective. The break of the 50-day EMA, in mid-February, strengthened the case for bears. Sights are on $1800.0 and $1787.3, the 50.0% retracement of the uptrend between Sep 28 and Feb 2. On the upside, the 50-day EMA marks the first key short-term resistance. A clear breach of this average would ease bearish pressure.

• WTI Crude up $0.24 or +0.31% at $77.32
• Natural Gas up $0.01 or +0.29% at $2.753
• Gold spot up $4.98 or +0.27% at $1831.57
• Copper up $5.4 or +1.32% at $414.35
• Silver up $0.13 or +0.6% at $21.037
• Platinum up $7.62 or +0.8% at $963.95